Friday, March 30, 2018

Nothing stays the same in dynamic systems, and it's inevitable that the current glut of low costs / cheap stuff will give way to scarcities that cannot be filled at current low prices.

One of the books I just finished reading is The Fate of Rome: Climate, Disease, and the End of an Empire. The thesis of the book is fascinating to those of us interested in the rise and fall of empires: Rome expanded for many reasons, but one that is overlooked was the good fortune of an era of moderate weather from around 200 BC to 150 AD: rain was relatively plentiful/ regular and temperatures were relatively warm.

Roman technology and security greatly expanded trade, opening routes to China, India and Africa that supplied much of Roman Europe with luxury goods. The Mediterranean acted as a cost-effective inland sea for transporting enormous quantities of grain, wine, etc. around the empire.

These trade routes acted as vectors for diseases from afar that swept through the Roman world, decimating the empire's hundreds of densely populated cities whose residents had little resistance to the unfamiliar microbes.

Rome collapsed not just from civil strife and mismanagement, but from environmental and infectious disease pressures that did not exist in its heyday.

Colder, drier weather stresses the populace by reducing their food intake, which leaves them more vulnerable to infectious diseases. This dynamic was also present in the 15th century during another mini ice age, when the bubonic plague (Black Death) killed approximately 40% of Europe's population.

Which brings us to the present: global weather has been conducive to record harvests of grains and other foodstuffs, and I wonder what will happen when this run of good fortune ends, something history tells us is inevitable. Despite the slow erosion of inflation, food is remarkably cheap in the developed world.

What happens should immoderate weather strike major grain-growing regions of the world?

Then there's infectious diseases. Global air travel and trade has expanded the spectrum of disease vectors to levels that give experts pause. The potential for an infectious disease that can't be mitigated to spread globally is another seriously under-appreciated threat to trade, tourism and cheap stuff in general.

There are other factors that could spell the end of cheap stuff, not just food but manufactured goods:

1. Fossil fuels could become much more costly. While I consider it highly likely that the price of oil in US dollars will fall to $40/barrel or lower in a global recession due to a sharp drop in demand (what I've long termed the head-fake), longer term, it's inevitable that the cheap-to-access fossil fuels (other than coal) will become depleted and the cost of accessing, processing and transporting what's left will rise.

Since fossil fuels remain the backbone of industrial societies everywhere (yes, including Germany), a steady increase in fuel costs will push the cost of everything that uses energy (i.e. everything) higher.

2. Trade restrictions/conflicts. Globalization and populism both target "unfair trade practices" in which "unfair" is in the eye of the beholder: imports hurt the domestic economy everywhere, and exports help the domestic economy everywhere.

If trade is restricted for whatever reason, the costs of commoditized goods will likely increase, possibly by a lot.

3. Global wages are rising. You've probably seen signs at Home Depot and fast-food chain outlets announcing "we're hiring": even though 100 million working-age people are "not in the work force" in the U.S., many of these individuals lack the skills and/or willingness to take jobs in the modern economy, which demand a lot of workers even in so-called low-skill fields such as fast food. To work in fast food, individuals must be able to handle high pressure and a fast pace; it's not an easy job by any means.

Many employers are reporting that they can't find enough qualified candidates who pass drug tests, yet another fallout of the opioid epidemic. Many people are saddled with felony convictions for nonviolent drug offenses, rendering them ineligible for most corporate or government employment.

Immigration restrictions and minimum wage laws will add to the rising cost of labor.

Globally, the baby Boom generation is retiring, leaving worker shortages on the horizon even in China. (Note that workers tend to retire much earlier in Asia and Europe than in the U.S.: 60 or 62 is typically the mandatory retirement age in much of the global economy.)

As Immanuel Wallerstein has observed (I've written about his work many times), there are systemic, secular pressures to raise wages and benefits everywhere: costs are rising, and people expect more government services such as education and income security, and as taxes increase, wages must rise to maintain the net earnings (purchasing power) of the workers.

We in North America have become accustomed to cheap stuff; we consider it our birthright: cheap fuels, cheap manufactured goods, cheap food and cheap labor. Without even being aware of it, we feel entitled to "low prices always." We may feel fuel, food and consumer goods are expensive now, but we are comparing prices to an extended period of extraordinarily low costs.

Prices for energy could easily rise 50%, impacting the cost of everything; should harvests be crippled by bad weather, the cost of grains could easily double or triple from their current historic lows. Should trade be restricted and wages rise virtually everywhere, manufactured consumer goods could go up in price even as robots replace human labor: energy and raw materials will still be costly inputs even if all human labor is eliminated.

Add in some stiff tariffs for unfair trade practices, and all the robots in the world won't keep prices down.

Nothing stays the same in dynamic systems, and it's inevitable that the current glut of low costs / cheap stuff will give way to scarcities that cannot be filled at current low prices. Cheap stuff will go away, and everything will cost more. It seems highly likely that the next decade will not be like the last 10 years of abundance and cheap stuff.

Courtesy of Incrementum AG, here is a chart of the commodity/S&P 500 ratio. Commodities are at historic lows in relation to stock market valuations. Stocks can decline, or commodities can rise, or both can occur in tandem. If history is any guide, this ratio will reverse and reach a peak within the next decade.

Tuesday, March 27, 2018

As for Iraq, the implicit gain was supposed to be access to Iraqi oil.

Setting aside the 12 years of "no fly zone" air combat operations above Iraq from 1991 to 2003, the U.S. has been at war for almost 17 years in Afghanistan and 15 years in Iraq. (If the word "war" is too upsetting, then substitute "continuing combat operations".)

Since the burdens and costs of these combat operations are borne solely by the volunteers of the U.S. Armed Forces, the American populace pays little to no attention to the wars unless a household has a family member in uniform who is in theatre.

Permanent combat operations are now a barely audible background noise in America, something we've habituated to: the human costs are invisible to the vast majority of residents, and the financial costs are buried in the ever-expanding mountain of national debt. What's another borrowed trillion dollars on top of the $21 trillion pile?

But a nation continually waging war should ask: to whose benefit? (cui bono) As near as I can make out, the nation has received near-zero benefit from combat operations in Afghanistan, one of the most corrupt nations on Earth where most of the billions of dollars "invested" have been squandered or stolen by the kleptocrats the U.S. has supported.

What did the nation gain for the tragic loss of lives and crippling wounds suffered by our personnel and Afghan civilians?

(Note that the U.S. was importing around 700,000 barrels a day from Iraq before Operation Iraqi Freedom was launched in March 2003--and imports from Iraq declined as a result of the war. So what was the energy-security gain from launching the war?)

Meanwhile, Iraq exports over 2 million barrels a day to China and India, where the presumed benefit to the U.S. is that U.S. corporations can continue to produce shoddy goods using low-cost Asian labor that are exported to U.S. consumers, thereby enabling U.S. corporations to reap $2.3 trillion in profits every year.

(Before China joined the World Trade Organization (WTO), U.S. corporate profits were around $700 billion--less than one-third the current gargantuan sum. Isn't this suggestive of the immense profits gained by offshoring production to Asia and reducing the quality of the goods being manufactured?)

Since "energy security", i.e. access to oil, was the implicit reason for going to war, let's ask: were all the sacrifices of lives and limbs and the direct costs of roughly $1 trillion worth the roughly $200 billion in oil that the U.S. has imported from Iraq-- and if history is any guide, could have imported without going to war at all?

It's far easier to blunder into war than it is to blunder out of war. But hey, it's certainly been profitable for a few at the top of the financial heap.

Sunday, March 25, 2018

So perhaps the dominant wing of the Deep State is finally willing to cut a deal with Trump.

To many observers, the appointment of John Bolton as national security advisor is the functional equivalent of appointing the Anti-Christ--or maybe worse. Indeed, these observers would, when comparing the two, find grudging favor with the Anti-Christ.

Bolton is a founding member of the neoliberal, neoconservative, neo-colonial interventionist Globalist wing of the Deep State. The antipathy he inspires is partly due to the enjoyment he takes in wielding power. (Note that the Anti-Christ is not a victim--he enjoys being the Anti-Christ.)

This wing of the Deep State, unquestionably in charge until the election of Donald Trump, finds Trump, well, interesting. Trump can congratulate Vladdy Putin on his shoo-in re-election one day and eject a bunch of Russian diplomats the next.

This sort of non-linear, non-ideologically pure "policy" (or lack thereof) discombobulates the Deep State, which is accustomed to presidents rubber-stamping their agenda and supporting their narrative.

They're having a tough time controlling Trump, as it's difficult to read how best to play him: is Trump a master of the Crazy Ivan or is he just winging it? Assuming the latter leaves those acting on that premise vulnerable to a Crazy Ivan once Trump has extracted whatever value he sought from the person or policy.

So how do we decrypt the appointment of Bolton? Here are two possibilities:

1. Trump appointed bete noire Bolton to do the dirty work of cleaning house and ridding the National Security Council and staff of any loyalists to previous presidents or cliques. This Bolton seems prepared to do with both alacrity and relish. This appointment also throws a bone to those demanding a harsher, more interventionist foreign policy.

Once Bolton has cleaned house and disrupted or fired the status quo holdovers from the Obama administration, he'll be fired like everyone else. Crazy Ivan!

2. The neo-liberal /neo-conservative /neo-colonial wing of the Deep State has given up trying to evict Trump from the White House or manage him. Both of these strategies carry high risks and the assessment has likely been made that both have not just failed, they're increasingly counter-productive, eroding the legitimacy of those pushing them.

So perhaps the dominant wing of the Deep State is finally willing to cut a deal with Trump: Trump appoints Bolton, whom the Deep State views as the adult supervising the playground, and in return, the Mueller investigation goes away and the Clintons will finally lose the protection of the security agencies. (They've become enormous liabilities anyway, and there's no benefit to the high cost of continuing to protecting them.)

If Trump is just winging it, the Deep State might finally re-exert some of the control it has lost in the White House and desperately needs to re-consolidate.But if Trump is actually adept at the Crazy Ivan, this deal plays right into his hands: the security services lower the moat gate, letting the wolves in to ravage Castle Clinton, Bolton cleans house and Mueller wraps up his hunt for obstruction of justice and accepts retirement.

Once these goods have been delivered, Trump fires Bolton and the neo-cons in the Deep State get nothing except another lesson in Crazy Ivan.

It will be interesting to see how this plays out. I will be greatly surprised if Bolton lasts a year.

Thursday, March 22, 2018

Let's imagine a model in which the marketers of data distribute some of their immense profits to the users who created and thus "own" the data being sold for a premium.

It's not exactly news that Facebook, Google and other "free" services reap billions of dollars in profits by selling data mined/collected from their millions of users. As we know, If you're not paying for it, you're not the customer; you're the product being sold, also phrased as if the service is free, you are the product.

Correspondent GFB recently asked, why aren't Facebook et al. sharing a slice of the profits reaped from users' data with the users who create the data?Given the enormous data processing capabilities of these tech giants, it's certainly not a technical issue to credit each user a micro-payment when the data they create and thus "own" (since the creator of any digital product is by rights the owner of that product, including data sold to marketers) is sold.

Is the presumption that the collector of users' data "own" that data via the collection process false, legally and ethically? Teams of attorneys may well be employed to support this claim on legal grounds, but what about the ethics of this data-mining of the many to profit the few with the means to collect and sell the data harvested from users?

Now that the ethical foundation of all these tech giants has been revealed to be nothing but shifting sand, it's a line of inquiry worth pursuing. In some ways it parallels the situation in biomedicine: if a private-sector corporation harvests a particular genetic variation from an individual, do they "own" the variation because they detected it, or does the individual whose tissue/blood was harvested retain some ownership?

We need to differentiate sites and services that 1) do not collect data from users and 2) sell display advertising seen equally by all users (i.e. the traditional media model) and sites and services that 1) collect data from users as their "business model" / reason to exist and 2) sell marketing/advertising for a premium because it's targeted to individual users.

The difference between these two models is obvious: one is "broadcast" available equally to users and advertisers alike. The other is "targeted marketing" based on data harvested from individual users.

I think the ethical case for sharing the profits reaped from selling the premiums gained by targeting users based on data harvested from them is strong. Note that the premium is derived not from some unique technology or intellectual property developed by Facebook, Google et al. but specifically and directly from the sale of data harvested from users.

Let's imagine a model in which the marketers of data distribute some of their immense profits to the users who created and thus "own" the data being sold for a premium. This could be viewed as a royalty paid to the creators of the data or as a dividend paid to the pool of "owners" of the data being collected and sold.

However the payment is labeled, the point is that the profits should be shared with those who are creating the data being sold.

I've laid out a variety of solutions to structural problems in my many books, and I'll attempt a brief synthesis in this post.

1. The dynamics of stagnation are built into the system. Centralized systems optimize specific solutions to a specific set of problems that prompted the development of the system.

In the U.S., the empire that resulted from the global effort to win World War II and the Cold War competition with the Soviet Union spawned centralized bureaucracies to manage the complexities and budgets of this new era.

In effect, the system was optimized to the circumstances of 1950 or perhaps 1960. Though circumstances have changed, the system remains essentially unchanged, except bureaucracies and budgets have ballooned in response to the dynamics of bureaucracies: the initial purpose erodes and is replaced with self-aggrandizement of insiders and bureaucratic bloat.

As the systems optimized for a bygone era start failing, due to the erosion of accountability and transparency as insiders mask their self-serving ineffectiveness, the organizational structure attempts to meet the challenges by doing more of what's failing: since every layer of bureaucracy now has a constituency that will fight to the death to maintain its power, budget and perquisites, a ratchet effect is the dominant dynamic: budgets and power cannot decline due to resistance, but the path to increases in power and budget is well-greased.

Since the structures are optimized for a bygone era, the institutions are fundamentally incapable of responding effectively or reforming themselves.The universal solution to failing institutions and hierarchies is to throw more money at the failings in the doomed hope that doing more of what's failed will magically solve the systemic problems.

As a result, solutions are only possible outside these ossified, self-serving centralized hierarchies.

We see this dynamic in all the major public-private structures of our economy/society: higher education (solution: make students borrow even more trillions, or have the government borrow more trillions); healthcare (government needs to borrow more trillions), and national defense/security (government needs to borrow more trillions).

The failings and ineffectiveness of the systems themselves are ignored, lest insiders lose power and budgets.

2. Democracies have a fatal flaw: politicians win re-election by promising something for nothing: more benefits and entitlements and lower taxes. The gap between higher costs and declining revenues will be filled by government borrowing.

All this additional borrowing will be paid by the magic of "growth", which will expand tax revenues at a rate that exceeds the cost of borrowing.

But demographics, resource depletion and the diminishing returns of a consumer economy fueled by rapidly expanding public and private debt have sapped "growth" in fundamental ways. Ironically, borrowing and spending more to spur "growth" only hastens the diminishing returns of increasing debt to fund consumption today.

Democracies are thus optimized for rapid "growth" and are ill-suited to transition to DeGrowth, i.e. less of everything for the vast majority of the citizenry.

3. When faced with fiscal crises, central states/banks inevitably succumb to the temptation to print/borrow currency in whatever sums are needed to fill the shortfall of the moment. This profligate creation of currency seems to be magic at first; everyone accepts the "new money" at the current value. But eventually gravity takes hold and the currency's purchasing power declines, as the real economy (the production of goods and services) grows at rates far below the expansion of currency.

Even the greatest empires in human history have been unable to resist the "easy" solution of devaluing currency as the means of fulfilling all the promises that were made in less trying and more prosperous times.

This replacement of resilient, localized civil society by a central state is so gradual that the loss of civil society is not even grasped or understood: the economy and society are hollowed out without anyone even noticing, as the apparently all-powerful central state accumulates power over every aspect of life, supposedly for the benefit of all.

5. The only currencies that won't be debauched by insiders desperate to maintain the illusion that the status quo is permanent are decentralized, distributed non-state currencies that are accessible to everyone with a mobile phone or digital connection.

6. Traditional forms of money such as gold and silver are fine for those who are already wealthy and thus have the means to buy and stockpile precious metals, but for the billions of humans who lack wealth, the only real solution is access to a digital currency that is created and distributed specifically to everyone who labors on behalf of their local community.

This is the purpose of my CLIME system: the community labor integrated money economy, which creates and distributes non-state digital community to everyone who performs work that benefits their local community.

7. Existing systems optimized for bygone eras and maximizing the security and wealth of insiders are doomed to fail. Throwing money at these systems only speeds the dissolution of the entire financial system.

Solutions will only arise outside the control and boundaries of existing systems, as all structural solutions threaten to obsolete or replace existing structures, displacing all the incumbents and insiders who benefit from the continuing failure of the institutions they manage and control.

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